Natuzzi S.p.A

Annual Report on Form20-F

20182019

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM20-F

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended: December 31, 20182019

Commission file number:001-11854

NATUZZI S.p.A.

(Exact name of Registrant as specified in its charter)

Republic of Italy

(Jurisdiction of incorporation or organization)

Via Iazzitiello 47, 70029, Santeramo in Colle, Bari, Italy

(Address of principal executive offices)

Mr. Pietro Direnzo

Tel.: +39 080 8820 812; pdirenzo@natuzzi.com; Via Iazzitiello 47, 70029 Santeramo in Colle, Bari, Italy

(Name, telephone,e-mail and/or facsimile number and address of company contact person)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

Securities registered or to be registered pursuant to Section 12(g) of the Act:

None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

None

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report:

As of December 31, 20182019: 54,853,045 Ordinary Shares

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes  ☐    No  ☒

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

Yes  ☐    No  ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of RegulationS-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” and “emerging growth company” in Rule12b-2 of the Exchange Act.

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (§ 15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.  ☐

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

☐  Item 17                ☐   Item 18

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act).

Yes  ☐  ��                 No  ☒

TABLE OF CONTENTS

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TABLE OF CONTENTS

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EXPLANATORY NOTE

As previously reported by Natuzzi S.p.A. (the “Company”) in its Form6-K filed with the U.S. Securities and Exchange Commission (“SEC”) on March 30, 2020, in accordance with the SEC’s Order under Section 36 of the Securities Exchange Act of 1934 Granting Exemptions From Specified Provisions of the Exchange Act and Certain Rules Thereunder dated March 4, 2020 (ReleaseNo. 34-88318) (as modified on March 25, 2020 by ReleaseNo. 34-88465, the “Order”), the Company relied on the relief provided by the Order in connection with the filing of this annual report on Form20-F for the fiscal year ended December 31, 2019 (the “Annual Report”) due to the circumstances related to the novel coronavirus(“COVID-19”) outbreak.

In particular, due to restrictions on domestic and international travel and public gatherings, and a general “stay at home” order imposed by the Italian as well as other countries’ governments, theCOVID-19 pandemic materially restricted the ability of the Company to access its premises and records, thus delaying the Company’s ability to finalize its consolidated financial statements and prepare this Annual Report. Further, as part of the measures adopted by the Italian government in response to theCOVID-19 outbreak, the Decree n. 18 of March 17, 2020 (the “Italian Order”) extended the deadline for the Company to hold a shareholders’ meeting to approve its financial statements from 120 days to 180 days after the end of the applicable financial year. In accordance with the Italian Order, the Company held a shareholders’ meeting to approve its financial statements for the year ended December 31, 2019 on June 12, 2020.

PRESENTATION OF FINANCIAL AND OTHER INFORMATION

In this annual report on Form20-F (the “Annual Report”),Annual Report, references to “€” or “Euro” are to the Euro and references to “U.S. dollars,” “dollars,” “U.S.$” or “$” are to United States dollars.

Amounts stated in U.S. dollars, unless otherwise indicated, have been translated from the Euro amount by converting the Euro amounts into U.S. dollars at the noon buying rate in New York City for cable transfers in foreign currencies as certified for customs purposes by the Federal Reserve Bank of New York (the “Noon Buying Rate”) for euros on December 31, 20182019 of U.S.$ 1.1456.1.1227. The foreign currency conversions in this Annual Report should not be taken as representations that the foreign currency amounts actually represent the equivalent U.S. dollar amounts or could be converted into U.S. dollars at the rates indicated.

The consolidated financial statements of the Natuzzi S.p.A. as at and for the years ended December 31, 20182019 and 2017, and the consolidated statement of financial position as at January 1, 20172018 have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS”), including interpretations issued by the IFRS Interpretations Committee (IFRS IC)(“IFRS IC”) applicable to companies reporting under IFRS. The consolidated financial statements as at and for the year ended December 31, 2018 arewere the Group’s first set of consolidated financial statements prepared in accordance with IFRS and IFRS 1 “First-time Adoption of International Financial Reporting” has been applied.

The annual audited consolidatedwas applied to such financial statements contained in this annual report are the Company’s first consolidated financial statements prepared in accordance with IFRS.statements. Historical financial results as ofat and for the year ended December 31, 2017 have been adjusted based on IFRS, which differs fromrestated for comparative purposes, in order to present the results included in our annual reports on Form 20-F foreffect of the year ended December 31, 2017. In addition, no consolidated financial statements and no financial information prepared in accordance with IFRS for the year ended December 31, 2016 have been included in this annual report.adoption of IFRS. See NotesNote 1 and 43 to the Consolidated Financial Statements included in Item 18 of this Annual Report.Statements.

All discussions in this Annual Report are in relation to IFRS, unless otherwise indicated.

In this Annual Report, the term “seat” is used as a unit of measurement. A sofa consists of three seats; an armchair consists of one seat.

The terms “Natuzzi,” “Natuzzi Group”,Group,” “Company,” “Group,” “we,” “us,” and “our,” unless otherwise indicated or as the context may otherwise require, mean Natuzzi S.p.A. and its consolidated subsidiaries.

None of the websites referred to in this Annual Report, including where a link is provided, nor any of the information contained on such websites is incorporated by reference in this Annual Report.

FORWARD-LOOKING INFORMATION

The Company makes forward-looking statements in this Annual Report. Statements that are not historical facts, including statements about the Group’s beliefs and expectations, are forward-looking statements. Words such as “believe,” “expect,” “intend,” “plan” and “anticipate”“plan,” “anticipate,” “likely,” “project,” “target,” “seek,” “goal,” “aim,” “could,” “should,” “would,” “may,” “might,” “will,” “strategy,” “future,” “continue,” “potential” and similar expressions are intended to identify forward-looking statements but are not exclusive means of identifying such statements. These statements are based on management’s current plans, estimates and projections, and therefore readers should not place undue reliance on them. Forward-looking statements speak only as of the dates they were made, and the Company undertakes no obligation to update or revise any of them, whether as a result of new information, future events or otherwise.

Projections and targets included in this Annual Report are intended to describe our current targets and goals, and not as a prediction of future performance or results. The attainment of such projections and targets is subject to a number of risks and uncertainties described in the paragraph below and elsewhere in this Annual Report. See “Item 3. Key Information—Risk Factors.”

Forward-looking statements involve inherent risks and uncertainties, as well as other factors that may be beyond our control. The Company cautions readers that a number of important factors could cause actual results to differ materially from those contained in any forward-looking statement. Such factors include, but are not limited to: effects on the Group from competition with other furniture producers, material changes in consumer demand or preferences, significant economic developments in the Group’s primary markets, the Group’s execution of its reorganization plans for its manufacturing facilities, significant changes in labor, material and other costs affecting the construction of new plants, significant changes in the costs of principal raw materials and in energy costs, significant exchange rate movements or changes in the Group’s legal and regulatory environment, including developments related to the Italian Government’s investment incentive or similar programs.programs, the duration, severity and geographic spread of the recent coronavirus(COVID-19) outbreak, actions that may be taken by governmental authorities to contain theCOVID-19 pandemic or to mitigate its impact, the potential negative impact ofCOVID-19 on the global economy, consumer demand and our supply chain, and the impact ofCOVID-19 on the Company’s financial condition, business operations and liquidity. The Company cautions readers that the foregoing list of important factors is not exhaustive. When relying on forward-looking statements to make decisions with respect to the Company, investors and others should carefully consider the foregoing factors and other uncertainties and events.

PART I

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

ITEM 3. KEY INFORMATION

Selected Financial Data

The following table sets forth selected consolidated financial data under IFRS for the periods indicated and is qualified by reference to, and should be read in conjunction with, the Consolidated Financial Statementsconsolidated financial statements and the notes thereto included in Item 18 of this Annual Report (the “Consolidated Financial Statements”) and the information presented under “Operating and Financial Review and Prospects” included in Item 5 of this Annual Report. The statements of profit or loss and statements of financial position data presented below have been derived from the Consolidated Financial Statements.

The consolidated financial statements of Natuzzi S.p.A. as at and for the years ended December 31, 20182019 and 2017, and the consolidated statement of financial position as at January 1, 20172018 have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS”),IFRS, including interpretations issued by the IFRS Interpretations Committee (IFRS IC)IC applicable to companies reporting under IFRS. The consolidated financial statements as at and for the year ended December 31, 2018 arewere the Group’s first set of consolidated financial statements prepared in accordance with IFRS and IFRS 1 “First-time Adoption of International Financial Reporting” haswas applied to such financial statements. Historical financial results as at and for the year ended December 31, 2017 have been applied.

Being a first-time adopter, the Group restated the 2017 consolidated financial statements for comparative purposes, in order to present the effect of the adoption of the IFRS. Historical financial results as of and for the year ended December 31, 2017 have also been adjusted based on IFRS, which differs from the results included in our annual reports on Form 20-F for the year ended December 31, 2017.

The Group’s date of transition to the IFRS iswas January 1, 20172017. For a description of the effects of the transition from Italian GAAP to IFRS and its first set ofthe related reconciliation schedules, see Note 43 to the consolidated financial statements prepared in accordance with the IFRS is that as at and for the year ended December 31, 2018. Note 43 to the Consolidated Financial Statements2018 included in Item 18 of this Annual Report describes the effects of the transition from the generally accepted accounting principles in the Republic of Italy (“Italian GAAP”) to the IFRS and presents the related reconciliation schedules.

Since these are our first audited consolidated financial statements prepared in accordance with IFRS, pursuant to the transitional relief grantedannual report on Form20-F filed by the U.S. Securities and Exchange Commission in respect of the first-time adoption of IFRS, we have only provided financial statements and financial information for the financial years ended December 31, 2018, 2017 and January 1, 2017. Financial data as of and for the years ended December 31, 2014, 2015 and 2016 derived from our consolidated financial statements prepared in accordance with the generally accepted accounting principles in the Republic of Italy (“Italian GAAP”) have not been included below, and no consolidated financial statements and no financial information prepared in accordance with IFRS for the year ended December 31, 2016 have been included in this annual report. See Notes 1 and 43 to the Consolidated Financial Statements included in Item 18 of this Annual Report.Company on April 30, 2019.

The nature and scope of the consequences of theCOVID-19 pandemic are difficult to evaluate precisely, and their future course is impossible to predict with confidence.

TheCOVID-19 crisis has already had several significant effects on our business and our financial condition. During the first part of 2020, theCOVID-19 outbreak has negatively affected our revenue and cash flows mainly due to a reduction in consumer demand, significant business interruption arising from the closure of manufacturing facilities and directly operated stores and franchise stores due to lockdown measures adopted by governmental authorities, supply chain and logistic disruptions, and travel restrictions and unavailability of personnel.

All travel abroad, to and from areas affected by theCOVID-19 pandemic, has been cancelled or reduced to a minimum, and is limited to guaranteeing operational requirements. The Group has been making wide use of the remote work option, which involves almost the entirety of its resources. Beginning in January 2020, we temporarily closed our retail locations and plant in China and, subsequently, all of our other points of sale around the globe and our Italian and remaining plants. Due to theCOVID-19 pandemic, the 2020 edition ofIl Salone del Mobile (one of the world’s leading furniture fairs that is held each year in Milan, Italy) has been cancelled and additional furniture fairs where we typically present our products may in the future be cancelled or postponed if the pandemic continues. Although we continue to serve our customers virtually through our online websites and remotely, our business operations have been substantially affected by applicable regulatory restrictions includingstay-at-home requirements applicable in the different countries we operate, including the United States (“U.S.”), many European countries and Italy, where our corporate headquarters is located.

While at the date of this Annual Report some of the lockdown measures in Italy and in other countries in which we operate have started to be lifted and, as a result, some of our plants and stores have started to be reopened (especially in China), we may face longer term closure requirements and other operational restrictions with respect to some of our physical locations for prolonged periods of time due to, among other factors, continued stringent restrictions adopted by national or local authorities, includingshelter-in-place orders. Additionally, even once we are able to reopen all closed physical locations, changes in consumer behavior and health concerns may continue to impact consumer demand for our products and customer traffic at our points of sale and may make it more difficult to staff our business operations. Further, any efforts to mitigate the impact ofCOVID-19 through social distancing measures, enhanced cleaning measures and the increased use of personal protective equipment at our plants and directly operated stores, as well as other steps aimed at protecting the health, safety and financial security of our employees, may result in other negative impacts on our operations, including increased costs, reduced efficiency levels or labor disputes resulting in a strike or other work stoppage or interruption.

The spread ofCOVID-19 outbreak may disrupt our third-party business partners’ ability to meet their obligations to us, which may negatively affect our operations. These third parties include, among others, our suppliers, logistics providers, vendors, landlords and lenders. One or more of these third parties may experience financial distress, staffing shortages or liquidity challenges, file for bankruptcy protection, go out of business, or suffer disruptions in their business due to theCOVID-19 outbreak. The health crisis, resulting deterioration in financial markets and overall economic conditions could have a material adverse effect on the financial condition of third parties that could be essential to our business operations and we may incur losses and other negative impacts for difficulties experienced by our suppliers, vendors and other third parties. Specifically, substantial disruptions to our global supply chain have already occurred as a result of theCOVID-19 health crisis and may continue to occur in the future, adversely affecting our business and results of operations.

As a result of theCOVID-19 outbreak, and the corresponding reduction in our sales, we had to institute a number of measures to manage liquidity and reduce costs. See Note 3(f) to the Consolidated Financial Statements. These efforts may not be enough to offset anticipated declines in revenue, including the loss of sales related to store and Italian plant closures, and may negatively affect our ability to quickly resume operations when we are able tore-open all our points of sale.

As a result of our efforts to manage our liquidity, we may incur substantial reductions to the level of our expected capital expenditures for the fiscal year 2020. The exact scope of our capital plans for 2020 will depend on a variety of factors including the availability of other sources of capital and the way our business will perform for the entire duration of this health crisis. In addition, the effects ofCOVID-19 on our business, including as a result to actions taken by central and local government authorities in many countries in which we operate in response to the outbreak, may require changes to our real estate strategy and related capital expenditure and financing plans. For example, we may need to delay planned projects and store openings and defer our international retail expansion. In addition, we may continue to be required to make lease payments for our directly operated stores that have been closed, even if temporarily. Our efforts to mitigate the costs of delays and deferrals, store closures and other operational difficulties resulting fromCOVID-19, including negotiating with landlords and other third parties regarding the timing and amount of payments under existing contractual arrangements, may not be successful, and as a result, our real estate and planned investment strategy may have ongoing significant liquidity needs even as we scale back our operations and expansion cadence. While our general approach has been to target capital toward investments that we believe will achieve favorable returns for our shareholders, these decisions involve a significant amount of judgment regarding the availability of capital in future periods, especially during the current health emergency. In addition, our near-term decisions regarding the sources and uses of capital in our business will reflect and adapt to changes in market conditions and disruption in our business related toCOVID-19.

TheCOVID-19 outbreak has also significantly increased economic uncertainty and has led to disruption and volatility in the global capital markets, which could increase the cost of and accessibility to capital. If we need to access the capital markets, there can be no assurance that financing may be available on attractive terms, if at all. If we are not able to access capital at the time and on terms that our business requires, we may encounter difficulty funding our business requirements including debt repayments when due. We may require waivers or amendments to our existing credit facilities and these requirements may trigger pricing increases from lenders for available credit. If we are not able to access credit to fund our business requirements for liquidity, or the cost of available credit increases, we may need to curtail our business operations including various business initiatives that require capital investment.

Substantially all of our management personnel, including those in our corporate office in Santeramo in Colle, Italy, are subject toshelter-in-place requirements, which have resulted in most of our management team being required to work remotely. These working arrangements as well as other related restrictions, including severe limitations on travel, may have an impact on our operations, management effectiveness and internal control over financial reporting. Although we have technology and other resources to support these new work requirements, there can be no assurance that we will not suffer material risks to our business, operations, productivity and results of operations as a result of these restrictions. If a significant percentage of our workforce is unable to work, including because of illness or travel or government restrictions in connection withCOVID-19, our operations may be negatively impacted, potentially materially adversely affecting our business, liquidity, financial condition or results of operations.

Disruption caused by business responses to theCOVID-19 outbreak, including working-from-home arrangements, may create increased vulnerability to cybersecurity incidents, including breaches of information systems security, which could damage our reputation and commercial relationships, disrupt operations, increase costs and/or decrease net revenues, and expose us to claims from customers, suppliers, financial institutions, regulators, payment card associations, employees and others, any of which could have a material adverse effect on our financial condition and results of operations.

TheCOVID-19 pandemic and mitigation measures have also had an adverse impact on global economic conditions as well as the business climate in our primary consumer markets, including, but not limited to, the U.S., China, the United Kingdom (“UK”), Italy and other Western European countries, which could have an adverse effect on our business and financial condition and our ability to regain previous sales levels as we reopen our retail locations. Our business also depends to some extent on conditions in financial markets. Previous downturns in the stock market were correlated with a reduction in consumer demands for our products. The Company’s business is particularly sensitive to reductions in discretionary consumer spending, which may be adversely impacted by a recession or fears of a recession, volatility and declines in the stock market and increasingly pessimistic consumer sentiment due to perceived or actual economic and/or health risks.

The ultimate magnitude of the impact ofCOVID-19, including the extent of its impact on our business and financial performance, will depend on numerous evolving factors that we may not be able to accurately predict, including: the length of time that the outbreak continues; its effect on our suppliers, logistics providers and the demand for our products; the duration of our points of sale closures; the effect of governmental regulations imposed in response to the outbreak; the effect on our customers, their communities and customer demand and ability to pay for our products and services, which may be affected by prolonged high unemployment, increased consumer debt levels, changes in net worth due to market conditions, and other factors that impact consumer confidence; disruptions or restrictions on our employees’ ability to work and travel, as well as uncertainty regarding all of the foregoing. We cannot at this time predict the full impact of theCOVID-19 outbreak, but it could have a larger material adverse effect on our business, liquidity, financial performance and results of operations beyond what is discussed within this Annual Report. We will continue to actively monitor theCOVID-19 situation and may take further actions that could alter our business operations as may be required by governmental authorities, or that we determine are in the best interests of our customers, employees, suppliers, partners, stockholders and communities.

TheCOVID-19 pandemic may also have the effect of heightening many of the other risks described in this “Risk Factors” section, including, but not limited to, those relating to our growth strategy, our supply chain, increased prices of our principal raw materials, increased energy costs and labor costs, disruption in operations, loss of key employees, our indebtedness, general economic conditions and our international operations.

The Group has a recent history of losses; the Group’s future profitability, financial condition and ability to maintain adequate levels of liquidity depend, to a large extent, on its ability to overcome macroeconomic and operational challenges — In 2019, the Group reported a loss of €33.7 million and an operating loss of €22.5 million, mainly as a result of declining sales, extraordinary costs related to the Italian workforce and customs duties imposed by the U.S. on goods imported from China. In 2018, the Group reported a profit of €33.1 million, mainly as a result of a €75.4 million gain following the finalization of the joint venture in China which occurred in July 2018. See Note 10 to the Consolidated Financial Statements included in Item 18 of this Annual Report. During the same year, the Group reported2018, and an operating loss of €25.5 million. See “Item 5. Operating and Financial Review and Prospects.” In 2017, the Group reported a loss of €30.8 million and an operating loss of €24.0 million, mainly resulting from both external factors and new operational challenges. See “Item 5. Operating and Financial Review and Prospects.” During the 2013-2016 period, the Company implemented an intensive restructuring of its operations that led to an improving trend in its results.yearly operating loss.

InFrom 2017 and 2018,through 2019, the Group concentrated its efforts on the expansion of the Group’s retail network of monobrandmono-brand stores, both directly operated and franchised.franchised operated. This activity required significant upfront costs at both the regional and HQ level. Most of the newly opened mono-brand stores were not fully productive during the first months offollowing their openings in 2017 and 2018 and, therefore, investments in the retail and marketing organization were, at the beginning, not adequately returned by sales. While the Group expects the new directly-operatednewly opened mono-brand stores will progressively improve in productivity to absorb suchup-front costs, there is a chance that these investments will not be recouped.

As in previous years, the Group continues to operate in a persistently difficult macroeconomic environment affecting the furniture industry (particularly evident in some mature markets, such as Europe), which includes weak economic activity in certain Euro-zone countries..

The Group has redundant workers at its Italian operations. This remains an unresolved issue and the management of such redundant workers may not be successful and, therefore, could significantly impact ouroperations, earnings and liquidity in the foreseeable future — In May 2017, the Italian Supreme Court rejected the Company’s appeal of a lawsuit brought by two former employees of the Company relating to the implementation of theCassaIntegrazione Guadagni Straordinaria (“CIGS”), an Italian temporarylay-off program, ruling in favor of the plaintiffs. As a result of this decision, the Company accrued €9.3 million in the “Provision for legal claims” included in the “Provisions (non current)(non-current)” caption of the Company’s Statementstatement of financial position. In addition, in October 2016, the Company laid off 176 workers as part of an organization restructuring, 166 of which were thenre-employed in the second half of 2017 as the Bari Labor Court deemed the dismissals to have been carried out improperly. In this regard, in December 2017, the Company reached an agreement withand the Italian institutions representing thesethose workers agreed to extend the scope of an agreement signed by the Solidarity Agreement (as defined below)Company and the Minister of Labour and Social Politics in 2015 to reduce working hours per day (the “Solidarity Agreement”), in order to reducelessen the impact of there-employments in 2018. Pursuant to the Solidarity Agreement, a higher number of workers, as compared to the Company’s need, may continue to work at the Company, though with a salary reduction that is less than proportional to the reduction in working hours (as a result of government financial support).

In December 2018, subject to obtaining any applicable authorizations, the Company, along with the Trade Unionstrade unions and relevant Italian authorities, agreed to extend the current Solidarity Agreement (reduced-work schedules) for aone-year period ending in December 2019. In addition, parties2019 and signed an agreement to allowallowing the Company to benefit from a temporary workforce reduction program, involvingCIGS for up to 491 employees, for a period of 24 months, called CIGS “Cassa Integrazione Guadagni Straordinaria”, in order to support the Company’s reorganization process. Furthermore, the parties involved agreed upon settingto set up an Incentive Planincentive plan for staff who would voluntarily terminate their employment relationship in 2019. For further information, please see Note 21 of the Consolidated Financial Statements included in Item 18 of this Annual Report for the amounts accrued by

In December 2019, the Company, along with trade unions and relevant Italian authorities, agreed to extend the Solidarity Agreement through September 2020 and signed an agreement allowing the Company to benefit from CIGS for up to 487 employees, until the end of December 2020, in order to support the Company’s reorganization process. Furthermore, the parties involved agreed to set up an incentive plan for staff who would voluntarily terminate their employment relationship in 2020.

For information on the probable contingent liability related to legal procedures initiated by several third parties as a result of these past events.events, see Note 23 of the Consolidated Financial Statements.

In the EU, in particular, despite measures taken by several governments and monetary authorities to provide financial assistance to certain Eurozone countries and to avoid default on sovereign debt obligations, concerns persist regarding the debt burden of several countries. These concerns, along with the significant fiscal adjustments carried out in several countries, intended to manage sovereign credit risk, have led to further pressure on economic growth and may lead to new periods of recession.recession, especially in light of theCOVID-19 pandemic. Furthermore, a resurgence of the sovereign debt crisis in Europe could diminish the banking industry’s ability to lend to the real economy, thus creating a negative spiral of declining production, higher unemployment and a weakening financial sector.

In addition, uncertainties regarding future trade arrangements and industrial policies in various countries such as in the United Kingdom following the referendum to leave the European Union and in the United States under the current administration, create additional macroeconomic risk. InFollowing the United States,UK’s withdrawal from the EU on January 31, 2020, an11-month transition period started during which EU rules will continue to apply in the UK. During this period, the UK and the EU will seek to reach an agreement about their future relationship. However, there can be no assurance that such agreement will be reached prior to the end of the transition period. Although we believe that Brexit will not have a direct material impact on our operations or tax expense, the form of Brexit remains uncertain and may result, among other risks, in greater restrictions on imports and exports between the UK and EU countries, a fluctuation in currency exchange rates and additional regulatory complexity as well as further global economic uncertainty, all of which could have a material adverse effect on our business, financial condition and results of operations. Additionally, any policy to discourage import into the United StatesU.S. of home furnishings manufactured elsewhere could adversely affect our operations. Any new policies and any steps we may take to address such new policies may have an adverse effect on our business, financial condition and results of operations.

These difficult and uncertain conditions could continue to affect our sales and earnings in the future. Sales of residential furniture are impacted by downturns in the general economy primarily due to decreased discretionary spending by consumers.

Adverse economic conditions may also affect the financial health and performance of our dealers in a manner that will affect sales of our products or their ability to meet their commitments to us. Economic downturn may also affect retailers, our primary customers, and may result in the inability of our customers to pay the amounts owed to us. In addition, if our retail customers are unable to sell our products or are unable to access credit, they may experience financial difficulties leading to bankruptcies, liquidations, and other unfavorable events. If any of these events occur, or if unfavorable economic conditions continue to challenge the consumer environment, our future sales, earnings, and liquidity would likely be adversely impacted.

The Group’s ability to generate the significant amount of cash needed to service our debt obligations and comply with our other financial obligations, and our ability to refinance all or a portion of our indebtedness or obtain additional financing depends on multiple factors, many of which may be beyond our control — Our ability to make scheduled payments due on our existing and anticipated debt obligations and on our other financial obligations, and to refinance and to fund planned capital expenditure and development efforts will depend on our ability to generate cash. See “— The Group has a recent history of losses; the Group’s future profitability, financial condition and ability to maintain adequate levels of liquidity depend to a large extent on its ability to overcome macroeconomic and operational challenges.” We will need to generate sufficient operating cash flow from our operations to service our current and future projected indebtedness. Our ability to obtain cash to service our existing and projected debts is subject to a range of economic, financial, competitive, legislative, regulatory, business and other factors, many of which are beyond our control. We may not be able to generate sufficient cash flow from our operations to satisfy our existing and projected debt and other financial obligations, in which case, we may have to undertake alternative financing plans, sell assets, reduce or delay capital investments, or seek to raise additional capital on terms that may be onerous or highly dilutive. Our ability to refinance our indebtedness will depend on the financial markets and our financial condition at such time. To the extent we have borrowings under bank overdrafts and short-term borrowings that are payable upon demand or which have short maturities, we may be required to repay or refinance such amounts on short notice, which may be difficult to do on acceptable financial terms or at all.

Given the fast-moving nature of theCOVID-19 health crisis, and the corresponding impact on financial markets and the economy as a whole, there is an enhanced degree of uncertainty regarding the Company’s capital position and availability of capital to fund the Company’s liquidity requirements. Recognizing the significant threat to the liquidity of financial markets posed byCOVID-19, most of the central banks and governments all over the

world have taken dramatic actions to provide liquidity to the relevant banking systems and businesses. There can be no assurance that these interventions will be successful and that the financial markets will not experience significant contractions in available liquidity. While the Company may receive financial, tax or other relief and other benefits under and as a result of laws passed by the Italian and other countries’ governments, it is not possible to estimate at this time the availability, extent or impact of any such relief. In addition, store closures and other operational difficulties faced by the Company may negatively affect the Company’s financial condition and restrict the availability of liquidity for its operational needs, and access to additional funds may be difficult as a result of the disruptions in the global financial markets due toCOVID-19. See “— The global outbreak ofCOVID-19 has had, and is expected to continue to have, an adverse impact on our business, operations and results.”

At December 31, 2018,2019, we had €35.1€24.2 million of bank overdraft and short-term borrowings outstanding. In addition, while we had €62.1€39.8 million of cash and cash equivalents at December 31, 2018, 29.4%2019, 41.6% of this amount was held by our Chinese subsidiaries, which can be paid to us incurring withholding taxes.subsidiaries. We cannot assure you that any refinancing or restructuring would be possible, that any assets could be sold, or, if sold, of the timing of the sales or the amount of proceeds that would be realized from those sales. We cannot assure you that additional financing could be obtained on acceptable terms, if at all, or would be permitted under the terms of our various debt instruments then in effect. Our failure to generate sufficient cash flow to satisfy our existing and projected debt obligations, or to refinance our obligations on commercially reasonable terms, would have an adverse effect on our business, financial condition and results of operations.

The Company uses a securitization program to manage liquidity risk. Should such program be terminated, the Company’s ability to manage such risk will be impaired — As a means to manage liquidity risk, in July 2015, the Company entered into anon-recourse securitization agreement (the “Securitization Agreement”) with an affiliate of Banca Intesa (the “Assignee”). Under the Securitization Agreement, the Company assigns certain customer receivables to the Assignee in exchange for short-term credit, thereby providing the Company with an important and stable source of short-term funding. The Company’s ability to continue using this tool to mitigate liquidity risk depends on the assigned receivables meeting certain credit criteria, one such criterion being the continued solvency of the customers owing such receivables. If these criteria are not met, including, for example, because the credit quality of the Company’s customers deteriorates, the Securitization Agreement may be terminated, thereby depriving the Company of an important tool for managing liquidity risk. The Securitization Agreement is set to expire in July 2020. We cannot guarantee that we will renew it or enter into a new securitization agreement at the same or similar terms, if at all.

The Group’s operations have benefited in 20182019 and in previous years from temporary work force reduction programs that, if not continued, may have an impact on the Group’s future performance— Due to the persistently difficult business environment that has negatively affected the Group’s sales performance over the years, the Company has in recent years entered into a series of agreements with Italian trade unions and the relevant Italian Ministry pursuant to which government funds have been used to pay a substantial portion of the salaries of redundant workers who are subject to either layoffs (as in the case ofCassa Integrazione Guadagni Straordinaria, or “CIGS,” CIGS, an Italian temporarylay-off program) or reduced work schedules (as in the case of the Solidarity Agreement, as defined below)Agreement).

See “—The agreements signed in recent years have been important. Between October 2013 and October 2015, 500 blue collarGroup has redundant workers voluntarily terminated their employment with Company, which led to a gradual reduction of redundant structural staff.

On March 3, 2015, the Minister of Labour and Social Politics signed new agreements in order to reduce the redundant staff by reducing the working hours per day (the “Solidarity Agreement”). Pursuant to the Solidarity Agreement, a higher number of workers, as compared to the Company’s current need, may continue to work at the Company, though with a salary reduction that is less than proportional to the reduction in working hours (as a result of government financial support). On March 22, 2016, the Solidarity Agreement was extended for aone-year period, expiring on May 1, 2017. On March 27, 2017, the Companyits Italian operations. This remains an unresolved issue and the trade unions involved agreed to extendmanagement of such redundant workers may not be successful and therefore, could significantly impact our operations, earnings and liquidity in the Solidarity Agreement until December 2018.

In 2017, the Company had to reintegrate 166 workers by carrying out the reinstatement measures of the Bari Labour Court that canceled the October 2016 dismissals.

The impact of the reintegration of these 166 workers was managed by the Company through the signing of a new Solidarity Agreement, with the Minister of Labor and Social Politics and trade unions, which extends to all employees, including reintegrated workers.

In December 2018, subject to obtaining any applicable authorizations, the Company, along with the Trade Unions and Italian relevant authorities agreed to extend the Solidarity Agreement (reduced-work schedules) in force for aone-year period ending in December 2019. In addition, parties signed an agreement to allow the Company to benefit from a temporary workforce reduction program, called CIGS, involving up to 491 employees, for a period of 24 months in order to support the reorganization process. For further information, please see “Item 5. Operating and Financial Review and Prospects”.

foreseeable future.” The Company’s inability to continue reducing redundant structural staff and the related cost of labor could have an adverse effect on our financial condition, results of operations, and cash flows.

The Group’s operations may be adversely impacted by strikes, slowdowns and other labor relations matters— Many of our employees, including many of the laborers at our Italian plants, are unionized and covered by collective bargaining agreements. As a result, we are subject to the risk of strikes, work stoppages or slowdowns and other labor relations matters, particularly in our Italian plants.

We may not execute our Budget,Plan, successfully or in a timely manner, which could have a material adverse effect on our results of operations or on our ability to achieve the objectives set forth in our plans— On February 8,In October 2019, the Board of Directors adopted a budgetbusiness plan for 2019. As set outthe 2020-2024 period (the “Plan”). The Plan focuses on several cornerstones including: a) increased focus on controlled distribution through mono-brand stores, both owned and franchises, in this Budget, we expect a slightpriority markets; b) revision of our production structure, including our collaboration with external industrial partners; c) sale of assets that are no longer in line with our strategy; d) streamlining our processes and costs. More generally, the Plan provides for management, administrative and financial measures designed to enable the Company to return to profitability within the period covered by consolidating investments made in the retailplan. Following theCOVID-19 outbreak, the Company had to revise the Plan, both for the current year and for the years to come, to take into account the high degree of uncertainty of the current business through the expansion of our mono-brand stores (either directly or franchised operated) as well as focusing primarily on a few selected primary customers with reference to our unbranded business, while continuing to implement efficiency recovery actions in manufacturing and supply chain and a general cost control activity. scenario.

The profitability of our operations depends on the successful and timely execution of the Budget. The failurerevised Plan. Failure to successfully and timely achieve thesethe objectives included in the Plan could result in a failure to reduce costs and improve sales and, hence, generate losses for the Group.

A failure to offer a wide range of products that appeal to consumers in the markets we target and at different price-points could result in a decrease in our future profitability — The Group’s sales depend on our ability to anticipate and reflect consumer tastes and trends in the products we sell in various markets around the world, as well as our ability to offer our products at various price points that reflect the spending levels of our target consumers. While we have broadened the offering of our products in terms of styles and price points over the past several years in order to attract a wider base of consumers, our results of operations are highly dependent on our continued ability to properly anticipate and predict these trends. The potential inability of the Group to anticipate consumer tastes and preferences in the various markets in which we operate, and to offer these products at prices that are competitive to consumers, may negatively affect the Group’s ability to generate future earnings.

In addition, with the vast majority of our revenue deriving from the sale of leather-upholstered furniture, consumers have the choice of purchasing upholstered furniture in a wide variety of styles and materials, and consumer preferences may change. There can be no assurance that the current market for leather-upholstered furniture will grow consistentconsistently with our internal projections or that it will not decline.

Demand for furniture is cyclical and may fall in the future— Historically, the furniture industry has been cyclical, fluctuating with economic cycles, and sensitive to general economic conditions, housing starts, interest rate levels, credit availability and other factors that affect consumer spending habits. Due to the discretionary nature of most furniture purchases and the fact that they often represent a significant expenditure to the average consumer, such purchases may be deferred during times of economic uncertainty such as those being recentlycurrently experienced in some of our markets, such as Europe, ordue to the United States some years ago.COVID-19 pandemic and its negative impact on general economic conditions.

The furniture market is highly competitive— The Group operates in a highly competitive industry that includes a large number of manufacturers. No single company has a dominant position in the industry. Competition is generally based on product quality, brand name recognition, price and service.

The Group principally competes in the upholstered furnituresub-segment of the furniture market. In Europe, the upholstered furniture market is highly fragmented. In the United States,U.S., the upholstered furniture market includes a number of relatively large companies, some of which are larger and have greater financial resources than the Group. Some of the Group’s competitors offer extensively advertised, well-recognized branded products.

Competition has increased significantly in recent years as foreign producers from countries with lower manufacturing costs have begun to play an important role in the upholstered furniture market. Such manufacturers are often able to offer their products at lower prices, which increases price competition in the industry. In particular, manufacturers in Asia and Eastern Europe have increased competition in the lower-priced segment of the market. As a result of the actions and strength of the Group’s competitors and the inherent fragmentation in some markets in which it competes, the Group is continually subject to the risk of losing market share, which may lower its sales and profits.

Market competition may also force the Group to reduce prices and margins, thereby negatively affecting its cash flows.

The highly competitive nature of the industry means that we are constantly at risk of losing market share, which would likely result in a loss of future sales and earnings. In addition, due to high levels of competition, it may not be possible for us to raise the prices of our products in response to inflationary pressures or increasing costs, which could result in a decrease in our profit margins.

In addition to increased regulatory compliance requirements, changes in laws could make ordinary conduct of our business more expensive or require us to change the way we do business. For example, public health officials and other governmental authorities in various countries in which we operate have adopted numerous mitigation measures to address the spread ofCOVID-19, in particular to discourage people from congregating in public, commercial or private spaces. Central and local authorities around the world, and in some instances mall and shopping center owners, have implemented a number of different directives that encourage or require changes in our business practices including requirements to close our points of sale and to curtail various aspects of our business operations. The scope and duration of these directives is evolving and not entirely clear. For a discussion of the impacts of temporary closure requirements on our business, see “— The global outbreak ofCOVID-19 has had, and is expected to continue to have, an adverse impact on our business, operations and results.” In addition, changes in laws related to treatment of employees, including laws related to limitations on employee hours, supervisory status, leaves of absence, mandated health benefits or overtime pay, could negatively impact us by increasing compensation and benefits costs for overtime and medical expenses.

The Group’s past results and operations have significantly benefited from government incentive programs, which may not be available in the future — Historically, the Group derived significant benefits from the Italian Government’s investment incentive programs for under-industrialized regions in Southern Italy, including tax benefits, subsidized loans and capital grants. See “Item 4. Information on the Company—Incentive Programs and Tax Benefits.” In recent years, the Italian Parliament replaced these incentive programs with an investment incentive program for all under-industrialized regions in Italy, which is currently being implemented by the Group through grants, research and development benefits. There are no indications at this time that the Italian Government will implement new initiatives to support companies located in under-industrialized regions in Italy. Therefore, there can be no assurance that the Group will continue to be eligible for such grants, benefits or tax credits for its current or future investments in Italy.

The Group has opened manufacturing operations in China, Brazil and Romania and in some cases was granted tax benefits and export incentives by the respectiverelevant governmental authorities in those countries. There can be no assurance that the Group will benefit from such tax benefits or export incentives in connection with future investments.

Failure to protect our intellectual property rights could adversely affect us —We believe that our intellectual property rights are important to our success and market position. We attempt to protect our intellectual property rights through a combination of patent and trademark laws, as well as licensing agreements and third partythird-party nondisclosure and assignment agreements or confidentiality and restricted use agreements. We believe that our patents, trademarks and other intellectual property rights are adequately supported by applications for registrations, existing registrations and other legal protections in our principal markets. However, we cannot exclude the possibility that our intellectual property rights may be challenged by others or that agreements designed to protect our intellectual property will not be breached, or that we may be unable to register our patents, trademarks or otherwise adequately protect them in some jurisdictions.

The Company relies on information technology to operate its business, and any disruption to its technology infrastructure could harm the Company’sCompany’s operations — We operate many aspects of our business including financial reporting, and customer relationship management through server andweb-based technologies. We store various types of data on such servers or with third-partiesthird parties who in turn store it on servers and in the “cloud”. Any disruption to the internet or to the Company’s or its service providers’ global technology infrastructure, including malware, insecure coding, “Acts of God,”

The price of the Group’s principal raw materials isand energy costs are difficult to predict —predict. In 2018, 83%2019, 81% of the Group’s total upholstered net sales came from leather-upholstered furniture sales. The acquisition of cattle hides represented approximately 18%21% of 20182019 total cost of goods sold. The dynamics of the raw hides market are dependent on the consumption of beef, the levels of worldwide slaughtering, worldwide weather conditions and the level of demand in a number of different sectors, including footwear, automotive, furniture and clothing.

More generally, changes in prices for raw materials are dependent on a number of factors beyond our control, including: macroeconomic factors that may affect commodity prices; changes in supply and demand; general economic conditions; significant political events; labor costs; competition; import duties, tariffs, anti-dumping duties and other similar costs; currency exchange rates and government regulation; and events such as natural disasters and widespread outbreaks of infectious diseases (such as the recent outbreak ofCOVID-19). In addition, energy costs have fluctuated dramatically in the past and, in recent periods, energy prices have been declining and could experience significant volatility in the near term. Depending on the nature of changes in these different factors that affect our business, we may experience an adverse impact on our business for different reasons including increased costs of operation or lower demand for our products. We may experience slower demand from customers in markets that depend upon energy prices for a portion of their economic activity.

The Group is dependent on qualified personnel —The Group’s ability to maintain its competitive position will depend to some considerable degree upon the personal commitment of its founder, chief executive officer (“CEO”) and chairman of the Company’s board of directors (the “Board of Directors”), Mr. Pasquale Natuzzi, as well as on its ability to continue to attract and maintain highly qualified managerial, manufacturing and sales and marketing personnel. There can be no assurance that the loss of key personnel would not have a material adverse effect on the Group’s results of operations.

Changes in tax laws may affect our results—We are subject to income taxes in Italy and other jurisdictions. Changes in tax laws, regulations, or administrative practices in those jurisdictions such ascould affect our financial position and results of operations. For example, the recently-enacted U.S. tax reform legislation commonly referred to as the U.S. Tax Cuts and Jobs Act of 2017 (the “2017 Tax Act”) could affect our financial position and results of operations. The 2017 Tax Act has significantly changed the U.S. federal income tax rules applicable to U.S. corporations, including by reducing the maximum statutory corporate income tax rate from 35% to 21% as of January 1, 2018. Accounting for the income tax effects of the 2017 Tax Act requires significant judgments in interpretation of its provisions, which may be affected by additional guidance that may be issued by the U.S. Treasury Department, the IRS, and standards-setting bodies. We have completed our evaluation of the impact of the 2017 Tax Act on our U.S. operations and no material impact has arisen for the 20172018 and 20182019 financial statements. More recently, certain jurisdictions in which we are subject to income taxes, including Italy and the U.S., have enacted changes in tax laws and procedures in response to the outbreak ofCOVID-19 and its consequences. For example, in the U.S., the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), enacted on March 27, 2020, introduced substantial changes to the U.S. tax code, including a temporary increase to the limitations on deductibility of business interest expense and temporary waiver of certain limitations on the use of net operating losses, in addition to making other changes. The impact of such changes, including by means of the CARES Act, on our financial position and results of operations is currently uncertain.

Investors may face difficulties in protecting their rights as shareholders or holders of ADSs — The Company is incorporated under the laws of the Republic of Italy. As a result, the rights and obligations of its shareholders and certain rights and obligations of holders of its ADSs (as defined below) are governed by Italian law and the Company’sstatuto (or theBy-laws). These rights and obligations are different from those that apply to U.S. corporations. Furthermore, under Italian law, holders of ADSs have no right to vote the shares underlying their ADSs; however, pursuant to the Deposit Agreement (as defined below), ADS holders do have the right to give instructions to BNY Mellon, National Association (“BNY” or the “Depositary”), the ADS depositary, as to how they wish such shares to be voted. For these reasons, the Company’s ADS holders may find it more difficult to protect their interests against actions of the Company’s management, board of directors or shareholders than they would if they were shareholders of a company incorporated in the United States.

One shareholder has a controlling stake of the Company — Mr. Pasquale Natuzzi, who foundedfounder of the Company and is currentlyits CEO and chairman of the Board of Directors, beneficially owns, as of April 19, 2019,the date of this Annual Report, an aggregate amount of 30,967,521ordinary shares of the Company (the “Ordinary Shares”), representing 56.5% of the Ordinary Shares outstanding (61.6% of the Ordinary Shares outstanding if the Ordinary Shares owned by members of Mr. Natuzzi’s immediate family—thefamily (the “Natuzzi Family”—) are aggregated). As a result, Mr. Natuzzi has the ability to exert significant influence over our corporate affairs and to control the Company, including its management and the selection of its board of directors. Since December 16, 2003, Mr. Natuzzi has held his entire beneficial ownership of Natuzzi S.p.A. shares through INVEST 2003 S.r.l., an Italian holding company wholly-owned by Mr. Natuzzi and with its registered office located at Via Gobetti 8, Taranto, Italy.

In addition, under the Deposit Agreement dated as of May 15, 1993, as amended and restated as of December 23, 1996, and as of December 31, 2001from time to time (the “Deposit Agreement”), among the Company, the Depositary, and owners and beneficial owners of American Depositary Receipts (“ADSs”),ADSs, the Natuzzi Family has a right of first refusal to purchase all the rights, warrants or other instruments which BNY Mellon, as Depositary under the Deposit Agreement, determines may not lawfully or feasibly be made available to owners of ADSs in connection with each rights offering, if any, made to holders of Ordinary Shares.

European lifestyle brand in the globalupholstered furniture industry worldwide (Brand Awareness Monitoring Report—Ipsos 2016)2018). Continuous stylistic research, creativity, innovation, solid craftsmanship, and industrialknow-how and integrated management throughout the entire value chain are the mainstays that have made Natuzzi one of the few players with global reach in the furniture market. Natuzzi S.p.A. has been listed on the New York Stock Exchange since May 13, 1993. For additional information on the Company’s listing on the New York Stock Exchange, see “Item 9. The Offer and Listing—Trading Markets.” Always committed to social responsibility and environmental sustainability, Natuzzi S.p.A. is ISO 9001 and 14001 certified (Quality and Environment), OHSAS 18001 certified (Safety on the Workplace) and FSC®FSC^® certified (Forest Stewardship Council). The Company first targeted the U.S. market in 1983 and subsequently began entering other European markets. Natuzzi continues to focus its attention on Brazil, Russia, India, China and other developing markets. Currently, the distribution network covers approximately 100 countries on five continents.

The brand portfolio of the Group is made ofincludes three main brands:Natuzzi Italia,Natuzzi Editions andDivani&Divani by Natuzzi. For a detailed description of the brand and its target markets, please see “Strategy—The Brand Portfolio Strategy” and “Products” below. The Group also offers unbranded products (also through its private label, Softaly) within a dedicated business unit to meet the specific needs of key accounts.

As of March 31, 2019,2020, the Group distributed its products as follows:

Organizational Structure

Natuzzi S.p.A. is the parent company (the “Parent Company”) of the Natuzzi Group. As of MarchDecember 31, 2019, the Company’s principal operating subsidiaries were:

See itemItem 18 of this Annual Report for further information on the Company’s subsidiaries.

Strategy

Over the last several years, the Group has focused its efforts on brand strengthening, expanding its product offering and retail network, and efficiency improvements in both procurement and operations. At the same time, the Group has implemented cost control measures to streamline its headquarter relatedheadquarters-related costs.

Additionally, we launched a new Group organization in July 2016 based on two business models (retail and wholesale) and two Divisions (Natuzzi Divisiondivisions (the Natuzzi brand division and Softaly Division)the Private label division). SuchThis strategy has stayedremained consistent throughout 2017 and 2018.

1) The Natuzzi Division — The Natuzzi Division hasIn 2019, the Company further developed its strategy as a widely-recognized,sales organization by focusing on the specific needs of each of the three following channels: i) the global consumer brand whose footprint has existed forbusiness retail channel, represented by mono-brand stores operated directly by the past 10 years.

In 2018Group and by third-parties; ii) the global business branded wholesale channel, consisting mainly of galleries and distributors offering Natuzzi Division executed its plan to evolve into adirect-to-consumerbranded products; and iii) the global business model, both organizationally and operationally.

First of all, a new consumer-centric organization has been established to drive the entirego-to-market process, from R&D to design, merchandising, brand communication, customer acquisition and customer value, supply chain, after sales service and customer retargeting.Private label wholesale channel, addressing mass distributors.

With regardi) Global Business Retail Channel – Based on its vertical integration strategy, during 2019 the Group continued to customer acquisition worldwide,develop its global retail distribution presence, through both directly operated stores and franchise stores, under thedirect-to-consumerNatuzzi Italia andNatuzzi Edition brands (the latter distributed in Italy and Portugal under theDivani&Divani by Natuzzi name). Our main goal was to implement the retail excellence business model has been accelerated throughin all stores. To be closer to the consumers, the Company worked on:

Precise market segmentation, clear brand positioning and clearly defined customer and consumer targets are intended to enhance the Group’s competitive strengths in all market segments to gain market share through its different product lines:lines, as described below.

a)Natuzzi Italiais sold mainly through the retail channel in monobrandmono-brand stores, concessions and galleries in multi-brand specialized stores andhigh-end department stores. The offer includes sofas designed and manufactured in Italy at the Company’s factories, positioned in the high end of the market, with unique and customized materials, workmanship and finishes thanks to the Natuzzi heritage of fine craftsmanship in the leather sofas segment. TheNatuzzi Italia product line includes furnishings and accessories for the living room and beds, bed linens and bedroom furnishings to further expand its product offerings.

b)Natuzzi Editions was initially designed specifically for the U.S. market. This collection includes a wide range of leather upholstery products, targeting the medium/medium-high segment of the market and leveraging theknow-how and high credibility of the Natuzzi brand in the leather upholstery industry.Natuzzi Editions products are almost entirely manufactured at the Group’s overseas plants (Romania, China and Brazil), as well as in Italy, and are sold through monobrandmono-brand stores and galleries. The retail and merchandising format ofNatuzzi Editions has evolved and now includes a wider offering of furnishings.

c)Divani&Divani by Natuzzi represents the branded retail network of the Group in the Italian market, made of both direct-owned stores and franchisedfranchise stores.

d) ThePrivate label (Softaly division)(or unbranded) division is a key account program to compete mainly in the entry price segments of the market by conducting business mainly through large distributors. Private label products are manufactured in the Group’s plants located in Romania, China and Brazil.

Improvement of the Group’s Retail Program and Brand Development — The Group has made significant investments to improve its existing distribution network and strengthen its Natuzzi brand. The high level of recognition of the Natuzzi brand amonghigh-end consumers is the result of investments the Company has made over the past decade in its products, communication, store experience and customer service. This consumer brand awareness encourages the Company to carry on its brand development and further enhancement of the Group’s distribution network, in order to further increase consumers’ familiarity with the Natuzzi brand, and their association of it as ahigh-end brand.

Manufacturing

OurIn response to recent challenges arisen in the global markets, and in particular the imposition of tariffs by the U.S. on goods imported from China, in the second half of 2019 the Group started a thorough revision of its industrial footprint, which will continue through 2020.

The first step of this revision process is the downsizing of our Chinese manufacturing plant, expected to be completed in the third quarter of 2020. Following the downsizing, our Chinese plant is expected to only serve the local market and the rest of the Asia-Pacific region.

As part of this new revision process, the Company has recently started outsourcing its production of unbranded products for some key U.S. accounts in Vietnam. Vietnam operations are expected to gradually serve the North American market, with a particular focus on our Private label offering. At the same time, the Company continues to explore further external industrial capacity in tariffs-free andlow-cost European countries to increase its production volumes and competitiveness also in the EMEAI market.

Currently, our manufacturing facilities are located in Italy, Romania, China, Romania, Brazil and Italy.

Our Chinese plant is located in Shanghai, extending over 88,000 square meters, and has been in operation since 2011. As of December 31, 2018, our Chinese plant employed 992 people, of whom 916 were laborers. It manufacturesNatuzzi Editions and private label products for the Americas (apart from South America) and for the Asia-Pacific market. In 2018, the Chinese plant produced about 32% of the Group’s total consolidated upholstery revenue.

Our Romanian plant is located in Baia Mare, extending over 75,600 square meters, and has been in operation since 2003. As of December 31, 2018, our Romanian plant employed 1,009 people, of whom 946 were laborers. It producesNatuzzi Editions and private label products for EMEA. In 2018, the Romanian plant produced about 16% of the Group’s total consolidated upholstery revenue.

Our Brazilian plant is located in Salvador De Bahia, extending over 28,700 square meters, and has been in operation since 2000. As of December 31, 2018, our Brazilian plant employed 232 people, of whom 172 were laborers.

Since the end of 2016, in addition to Natuzzi Revive, Natuzzi Editions and Private Label, the Brazilian plant also produces theNatuzzi Italia brand for the Brazil and South America market. During 2017, due to the increase in production volumes, a fourth and fifth moving line have been set up. The Group previously owned a Brazilian plant located in Pojuca, which it sold in 2015. For further information on the sale of the Pojuca plant, see “— Manufacturing—Brazilian Production” below.Brazil.

Our three Italian plants dedicated to the production of upholstered products and our two Italian warehouses are located in Santeramo Jesce, Matera Jesce and Laterza, all of which are located either in or within a 25 kilometer radius of Santeramo in Colle, where the Group’s headquarters areis located. Collectively, these sites extend over 120,000 square meters. As of December 31, 2018,2019, these sites employed 1,5701,534 workers, the majority of whom were subject to the layoff program.programs. See “Item 6. Directors, Senior Managers and Employees—Employees.” With the exception of our Brazilian andthe South American markets,market, the Italian plants are the exclusive producers ofNatuzzi Italia products for the world market and, beginning in the first quarter of 2014, these plants began producing theRe-vive performance recliner.products. In 2018,2019, these plants generated about 47%49% of the Group’s total consolidated upholstery revenue.

Our Romanian plant is located in Baia Mare. Extending over 75,600 covered square meters (with the total area extending over about 400.000 square meters), it has been in operation since 2003. As of December 31, 2019, it employed 1,003 people, of whom 848 were laborers. It producesNatuzzi Editions and Private label products for the EMEAI market. In 2019, the Romanian plant produced about 20% of the Group’s total consolidated upholstery revenue.

Our Chinese plant is located in Shanghai, currently extending over 88,000 square meters. The Group has been in operation in China since 2002. As of December 31, 2019, it employed 869 people, of whom 802 were laborers. It manufacturesNatuzzi Editions and Private label products for the Americas (with the exception of South America) and for the Asia-Pacific market. In 2019, our Chinese plant produced about 27% of the Group’s total consolidated upholstery revenue.

Our Brazilian plant is located in Salvador De Bahia. Extending over 28,700 square meters, it has been in operation since 2000. As of December 31, 2019, our Brazilian plant employed 218 people, of whom 166 were laborers. Since the end of 2016, in addition to these three Italian plants, weNatuzzi Editions and Private label products, the Brazilian plant producesNatuzzi Italia branded products for the South America market.

We also have two additional plants elsewhere in Italy: one in Udine (Natco S.p.A. (“Natco”)) dedicated to the production of leather and another one near Naples (IMPE S.p.A. (“IMPE”)) dedicated to the production of flexible polyurethane foam, as further described below.

These operations retain many characteristics of hand-crafted production coordinated through a management information system that identifies by number (by means of abar-code system) each component of every piece of furniture and facilitates its automatic transit and traceability through the different production phases up to the warehouse.

In recent years, the Group has been investing in the reorganization of its production processes, following the “Lean Production” approach. We believe that ongoing implementation of these more efficient production processes will allow us to regain competitiveness by reducing costs (both in terms of labor and consumption of materials) and improving the quality of our services (by reducing defects and lead time for production).

The new polymer matrix is safer than others availablemoving lines were gradually introduced in all of the Group’s production facilities. The Group integrated the following production phases in the market because of its improved flame resistance,moving line production process within our plants: (a) direct integration with wood and it is more environmentally-friendly because it can be disposed of without releasing harmfulby-products and because the raw materials used to make it cause a less harmful environmental impact during handling and storage.

Chinese Production: The original Chinese plant owned by the Group was subject to an expropriation process by local Chinese authorities, since the plant was located on land that was intended for public utilities. Negotiations involving the expropriation process began in 2009 and were concluded in 2011. The agreement setting for the payment of compensation for the expropriated plant was signed with Chinese authorities on January 26, 2011. As compensation for this expropriation, the parties agreed upon a total indemnity of CNY 420 million, which was equivalent to approximately €46.7 million based on the Yuan-Euro exchange rate as of December 31, 2011. The Company collected the full amount of the indemnity payment from the local Chinese authorities in 2011. During 2013, a second supplementary agreement was signed between the Company and the Shanghai Municipality, by which the Company obtained the reimbursement (€8.7 million) of taxes due and paid on the 2011 relocation compensation.

The Group’s current production plant in Shanghai was made available in January 2011 to compensate for the reduction in production capacity caused by the expropriation. The relocation process began in February 2011 and was completed, as planned, by the end of May 2011, after equipment and machinery were moved to the new plant. The relocation resulted in worker turnover of approximately 20% because of the distance of the new plant to the old one (approximately 35 kilometers).

Brazilian Production:The Group owned two plants in Brazil that, in the past, have been used for the production of upholstery for the Americas region. Due to the overall appreciation of the Brazilian Real against the U.S. dollar since these plants were opened and a consequent decline in competitiveness, the Group decided to temporarily close the Pojuca plant (putting it up for sale in 2010) and reduced the production capacity of the Salvador de Bahia plant to a level that is sufficientfoam suppliers to serve onlyeach plant according to daily needs (“just in time” supplying) with the Brazilian market. In February 2015advantage of reducing the Group entered into a sale purchase agreement to sell the Pojuca plant to a Brazilian company. By the end of 2015, the buyer paid the majority of the agreed sale price. The buyer completed the payment of the remainder of the agreed sale price in January 2016.

In order to minimize the potential future effects of currency fluctuationsstock level for semi-finished goods; and reduce supply lead times, our Brazilian subsidiary began to increase its local sourcing in 2014.(b) leather cutting and sewing.

Raw Materials — The principal raw materials used in the manufacture of the Group’s products are hides (mainly cattle hides,hides), fabrics, polyurethane foam, polyester fiber and wood.

The Group purchases hides from slaughterhouses and tanneries located mainly in Italy, Brazil, India, Germany, other countries in South America and Europe. The hides purchased by the Group are divided into several categories, with hides in the

The supply of raw cattle hides is principally dependent upon the consumption of beef, rather than on the demand for leather.

During 2018,2019, the prices for cattle hides significantly decreased by about 7% compared to 2017. According to historical trends, in 20182018. In 2019 the price of raw hides reached the lowest level in the last ten years, even lower than the previous record low in 2009. The current situation is quite uncertain, and due to the volatile nature of the hides market, there can be no assurance that current prices will remain stable or that price trends will not rise in the future. See “Item 3. Key Information—Risk Factors—The price of the Group’s principal raw materials isand energy costs are difficult to predict.”

The Group also purchases fabrics and microfibers for use in coverings. Both kinds of coverings are divided into several price categories. Most fabrics are purchased in Italy from a dozen suppliers which provide the product at the finished stage. Microfibers are purchased in Italy, South Korea and China through suppliers. Fabrics and microfibers are generally purchased from suppliers pursuant to orders given every week specifying the quantity (in linear meters) and the delivery date.

The Group obtains the chemicals for the production of polyurethane foam from major chemical companies located in Europe (including Germany, Italy and the United Kingdom)UK) and the polyester fiber filling for its cushions from several suppliers located mainly in Indonesia, China, Taiwan and India. The chemical components of polyurethane foam are petroleum-based commodities, and the prices for such components are therefore subject to, among other things, fluctuations in the price of crude oil. The chemical components prices increaseddecreased significantly in 20182019 compared with 2017 and strongly affected2018 with a favorable impact on the prices of polyurethane foam. During the last month of 2018, thisThis trend stopped and a decreasing trend began and continued intothrough early 2019. Within our Romanian industrial plant, we have a woodworking facility that provides wooden frames.2020.

The Group also offers a collection of home furnishing accessories (tables, lamps, rugs, home accessories and wall units in different materials). Most of the suppliers are located in Italy, and other European countries, while some hand-made products

The Group also plans procurements of raw materials and components:components as follows:

i)(i)“On demand” for those materials and components (which the Group identifies by code numbers) that require a shorter lead time for order completion than the standard production planning cycle for customers’ orders. This system allows the Group to handle a higher number of product combinations (in terms of models, versions and coverings) for customers all over the world, while maintaining a high level of service and minimizing inventory size. Procuring raw materials and components “on demand” eliminates the risk that these materials and components would become obsolete during the production process; and

ii)(ii)“Upon forecast” for those materials and components requiring a long lead time for order completion. The Group utilizes a forecast methodology that balances the Group’s desire to maintain low inventory levels against the Sales Department’s needs for flexibility in filling orders. This methodology was developed together with the Group’s Information Systems Department, in order to create an intranet portal, called Advanced Planning and Optimization (“APO”). APO was launched in March 2011 for sales coming from the North American and Asian-Pacific markets, under the supervision of a forecast manager and, beginning in June 2011, was implemented worldwide. This tool currently supports corporate logistics, operations managers and sales managers in our efforts to better forecast the future demand for the Group’s products and to improve communication between the Sales Department and the Logistics Department, therefore reducing inventory levels and improving the availability of raw materials.

Since 2012, a new methodology concerning furnishing management has been introduced. A more efficient cooperation with suppliers enabled the Group to handle furnishings components without storing them in our warehouses, resulting in improved service and reducing inventory levels.

Products

Products are mainly designed in the Company’s Style Center, but the Group also collaborates with international designers for the conception and prototyping of certain products in order to enhance brand visibility, especially with respect to theNatuzzi Italia product line.

New models are the result of a constant information flow from the market, in which preferences are analyzed, interpreted and turned into a brief for designers in terms of style, function and price point. Designers draw the sketches of new products in accordance with the guidelines they are provided and, through collaboration with the prototype department, approximately 70 new sofa models are generally introduced each year. The diversity of customer tastes and preferences, as well as the Group’s inclination to offer new solutions, results in the development of products that are increasingly personalized. More than 100 highly-qualifiedhighly qualified employees conduct the Group’s research and developmentR&D efforts from its headquarters in Santeramo in Colle, Italy.

The Group’s wide range of products includes a comprehensive collection of sofas and armchairs with particular styles, coverings and functions, with more than two million combinations.

Innovation

Since the end of 2013, the Company has been implementing a new production model based on the Lean Production“lean production” principles.

The sofa production model, under which sofas were traditionally assembled in a department-based factory (or “Isle Production”“isle production” model), was subject to review with a view toward implementing moving line-based manufacturing processes which would leadwith the aim to improvements inimprove efficiency, product quality and lead time. The moving line production model improves job area ergonomics by splitting products into lighter pieces at individual phases and also coordinates workers by ensuring that they work at a similar pace. The finished product tends to be of higher quality and produced more quickly. Tests and development

The moving line production system was implemented across all our plants by the end of 2015.

In an effort to reduce the overall complexity of the moving line production model at all stageslines processes and increase productivity, a dedicated team was created in July 2014 (the “lean team”). This team is still in charge of the activities listed below, which are now part of our ordinary industrial process: (a) analysis of the main product platforms produced in different plants of the Group; (b) diagnosis of these platforms, resulting in the elimination of underperforming models; (c) simplification of production process still continuecomplexity, through the elimination of models, versions, coverings that turned out to be underperforming; (d) test and are coordinatedimplementation, in collaboration with our products design.the University of Lecce, Italy, of a new software able to plan the production of all of the Group’s plants, with the ultimate goal of increasing the degree of repetitiveness in production, in order to reduce the complexity of production processes not only in individual plants but also in each production moving line; (e) use of an additional software necessary to define the best production sequence of models belonging to the same “family of products” (i.e., having similar components and similar production times) to be assembled and determine a correct balance between the various stations of the line.

In light of the encouraging results obtained in terms of reduced complexity and increased standardization of the moving lines processes, the Company also formalized the progressive implementation of a “last planner,” i.e. a planning tool scheduling the activity of every single moving line in all Natuzzi’s plants starting from September 2015.

In the field of process and product innovation, the Group implemented since 2013, the Modular Industrial Platform System, aimed at reducing manufacturing costs.Group has implemented a modular industrial platform system. Industrial platforms represent an industrial base common to many models that can be technically and aesthetically modified in order to meet customers’ requests. The utilization of such platforms grants substantial benefits in terms of product simplification (easy assembly), management (fewer codes to be managed), quality (fewer(potentially fewer production failures), and production costs (economies of scale), leading to an increase in competitiveness..

Beginning in 2015, theThe Company implementedis implementing the following new programs and measures related to the product development process and product design and engineering systems:

Management also continues to encourage innovation and new products by leveraging on the above-mentioned innovations activities and adopting the most updated technology that exists in the sector.

In reference to the innovation process, we began to implement the moving line production system in our plants at the beginning of 2014, and the system was implemented across all of our plants by the end of 2015. The following number of moving lines are currently installed: 24 in China, 15 in Romania, 9 in Italy (4 in Jesce, 4 in Laterza and 1 in the experimental laboratory located in the HQ) and 4 in Brazil.

Advertising

Natuzzi S.p.A. Marketing & CommunicationThe Company’s marketing and communication strategy has been built mainlycontinues to focus on the retail business model. Similarly to our distribution model, our marketing and communication model relies heavily on a holistic and multichannel approach, which targets all possible touchpoints with the goal to support revenues in each distribution channel with differentconsumers through innovative digital projects, advertising activities and specifically targeted events.

Our marketing and communication and media strategiesstrategy is differentiated per each branded product line.

We also launched Specifically, we have adopted two different approaches, one for the Natuzzi Digital (r)evolution project and continued to invest in our brand with special projects, events, media partnerships and advertising on high end lifestyle magazines.

The marketing strategy is executed on monthly basis in the key countries (where each branded product line is distributed), providingNatuzzi Italia andDivani&Divani by Natuzzi with promotional calls to actions, driven by a clear mission to encourage qualitative traffic of consumers in each of our retail stores. Thanks to strong integration between the merchandising strategybrands and the communication strategy, each marketing campaign advertises specific products, using a specific media kit to hit the right customer audience that we find most widely active, following anin-depth digital analysis, in the catchment area of a specific store (directly owned and licensed).

Relocation and closing of existing pointnon-performing points of sales has become proportionally less relevant. Newsale continued during 2019 aimed to get to a more efficient distribution network.

During 2019, new openings of all formats (stores and shops in shops for both Natuzzi Italia and Natuzzi Editions) increased the overall network of 100points-of-sale at worldwide level.

Most of the investment in Directly Operated Storesdirectly operated stores (“DOS”) for were concentrated in strategic countries: oneNatuzzi Italia has been focused on North America, with 3 new DOS in the USA (one each in Chicago, Costa Mesa and Ft. Lauderdale), and 3 full refits of existing stores in Mexico. There were also three new DOS in EMEA (2 new stores in Paris and 1 in Westfield, London city commercial center). In April 2019 a new Natuzzi Italia DOS was opened in Sarasota, FL, USA.U.S., oneNatuzzi Italia DOS was opened in Italy, near Milan, and twoNatuzzi Editions DOS were opened in Stockton and Stoke, UK, in continuity with our brand expansion strategy in the retail parks.

The Group achieved a boostcontinued to thestrengthen its retail development plan bythrough the Joint Venturejoint venture the Company signed for the Greater China, territory, where 17 18Natuzzi Italia stores as well as 52 and 53Natuzzi Editions Stores stores openings took place during 2018.2019.

BrazilIn addition, in 2019, we opened 3Natuzzi Italia stores and 10Natuzzi Editions stores in South America, provided additional growthwhich we believe could offer further opportunities with 1 Natuzzi Italia store opening and 9 Natuzzi Editions store openings last year.

The Group designed a new Retail Concept for the Divani&Divani by Natuzzi chain in Italy that has been tested in 3 locations. Company expectations are to increase number of openings within 2019 also leveraging on this new design.growth.

The following table shows the Group’s consolidated revenue of core products (including sales of upholstery sofas, beds as well asand furnishings) broken down by geographic market and Business Divisionbusiness division for each of the years indicated:indicated.

Core business consolidated net sales (millions of Euro)

The following table shows the number of seats sold of the Group broken down by geographic market and Business Divisionbusiness division for each of the years indicated:

Leather and Fabric Upholstered Furniture, Net Sales (in seats)

In 2018, the Group derived 47.9% of its core business (including sales of upholstery sofas, beds and furnishings) from the EMEA region, 33.2% from the Americas (Brazil included), and 18.9% from the Asia-Pacific region.

Sales from our SoftalyPrivate label division were €33.7€30.4 million, down 18.9%9.8% compared to 2017.2018. The Softalyunbranded division wascontinued to be affected by difficult retail conditions experienced in the North American market as some of our historical partners are restructuring their retail assets, resulting in a reduction of their points of sales.sale. In order to avoid competing solelyaddition, in 2019, the unbranded division has been negatively affected by customs duties imposed on goods manufactured in China and imported in the basisU.S. market and, more generally, by increased price competition. In light of market price,the tariffs imposed by the U.S. on goods imported from China, since December 2019, the Company has decidedstarted to focus primarily on a few selected primary customers going forward.outsource in Vietnam part of its Private label production for some Key Accounts in the U.S. See “—Manufacturing.”

The Group’s principal customers are major retailers.distributors. The Group advertises its products to retailersdistributors and, recently, to consumersend-consumers in the United States,U.S., Canada, Central and LatinSouth America (excluding Brazil) both directly and through the use of various marketing tools. The Group also relies on its network of sales representatives and on the furniture fairs held at its High Point, North Carolina, offices each spring and fall to promote its products.

Natuzzi Americas maintains offices in High Point, North Carolina and provides Natuzzi S.p.A with agency services. The staff at High Point provides customer service, trademarks and products promotions, credit collection assistance, and generally acts as the customers contact for the Group. As of March 31, 2019,2020, the High Point North Carolina operation had 5349 employees. In addition, such CompanyNatuzzi Americas has 11six independent sales representatives.

All of ourOur commercial activities in Brazil are overseen from our Salvador de Bahia facility. The Group’s commercial structure in Brazil has been reinforced over the years by an increase in personnel, from 12 representatives in 2012 to 2420 as of the end of 2018. 20182019. 2019 sales in Brazil were €14.2€12.0 million. As of March 31, 2019, in Brazil there were 6Natuzzi Italia stores, 38Natuzzi Editions stores, in addition to bothNatuzzi Editions and Natuzzi Italia galleries.